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Update to the Business Case for Nextgen

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Update to the Business Case for Nextgen UPDATE to The Business Case for the Next Generation Air Transportation System based on the Future of the NAS Report The Business Case for the Next Generation Air Transportation System JULY 2016 FY 2015 July 2016 I am pleased to provide you with an update to The Business Case for NextGen. This document provides an estimate of the high-level economic value of the Next Generation Air Transportation System (NextGen) and is fully aligned with our updated plans outlined in The Future of the NAS report. The FAA and its partners continue to make significant progress in the modernization of our air traffic infrastructure and transformation of our operation. NextGen improvements in every phase of flight are resulting in more and more benefits to airlines, passengers, the FAA and other users. We estimate that implemented changes already have accrued $1.6 billion of benefits since 2010. We expect that by 2030, the total benefits of NextGen improvements will be $160.6 billion, at a cost of $35.8 billion to the FAA and the aviation industry. After discounting to present value, the benefit-to-cost ratio is 3-to-1. More details are in this document and its appendices. This report provides the only NAS-wide analysis of benefits and costs of NextGen improvements by combining data from a number of sources, including system-wide modeling, business cases for individual programs, and observed results. To ensure that cost and benefit estimates are current, we analyze them regularly using the most up-to-date values that consider the progressive maturity of the various NextGen programs. The Business Case is consistent with assumptions about investments, benefits and costs in The Future of the NAS, and the two will be updated concurrently as needed. Several other changing factors that influence the economic analyses of NextGen will continue to be tracked internally by the FAA including program plans, forecasts of future fleet and air traffic, current values for fuel and other airline operating costs, current values for passenger time, and improvements to the FAA’s system-wide analysis capability. We are excited about the potential that NextGen has already begun to prove in delivering greater efficiency, predictability and resiliency for airspace users. NextGen improvements in technology and procedures represent a widespread, transformative change in the management and operation of the way we fly. The aerospace sector is a vital element in the country’s economy. Aviation contributes $1.5 trillion to the U.S. economy, generates more than 11.8 million jobs with earnings of nearly $460 billion and makes up 5.4 percent of our gross domestic product. Continued support for NextGen is essential as we forge the next generation of flight and maintain aviation’s vitality in the 21st century. James T. Eck Assistant Administrator for NextGen Federal Aviation Administration 2 TABLE OF CONTENTS INTRODUCTION .......................................................................................... 5 SCOPE OF ANALYSIS ................................................................................... 6 WHAT IS INCLUDED IN THIS BUSINESS CASE ................................................ 6 WHAT IS EXCLUDED IN THIS BUSINESS CASE ................................................ 7 BENEFITS OF NEXTGEN ............................................................................... 7 IMPLEMENTED IMPROVEMENTS: ALREADY ACCOMPLISHED .............................. 9 BASELINED IMPROVEMENTS AND RELATED NEARER-TERM IMPROVEMENTS ..... 11 ANTICIPATED IMPROVEMENTS: ON THE DRAWING BOARD ............................ 12 ESTIMATED COSTS OF NEXTGEN ............................................................... 14 ESTIMATED AVIONICS COSTS .................................................................... 16 ECONOMIC ANALYSIS ................................................................................ 17 CONCLUDING THOUGHTS .......................................................................... 20 APPENDIX A: BENEFITS METHODOLOGY ................................................... 22 ESTIMATING THE BENEFITS OF IMPLEMENTED IMPROVEMENTS ...................... 22 ESTIMATING FUTURE BENEFITS USING FAA’S SYSTEM WIDE ANALYSIS CAPABILITY .............................................................................................. 30 BENEFIT VALUATION METHODOLOGIES .................................................... 32 Valuing Modeled Improvements in NAS Performance ................................... 32 Valuing Reductions in Flight Times and Fuel Use ......................................... 32 Valuing Carbon Dioxide Reductions ........................................................... 34 Valuing Additional Flights ........................................................................ 34 Valuing Reductions in the Number of Canceled Flights ................................. 35 OPERATIONAL IMPROVEMENTS MODELED ................................................ 36 3 APPENDIX B: COST METHODOLOGY .......................................................... 39 COSTS TO THE GOVERNMENT ..................................................................... 39 Facilities and Equipment Costs ................................................................. 39 Research and Development Costs ............................................................. 40 Operations Costs .................................................................................... 41 COSTS TO AIRCRAFT OPERATORS ............................................................... 42 Commercial Aviation ............................................................................... 42 General Aviation ..................................................................................... 44 APPENDIX C: CHANGES IN BENEFIT ESTIMATES SINCE LAST YEAR .......... 46 WHY THE BUSINESS CASE IS UPDATED ANNUALLY AND WHY THE NUMBERS CHANGE .................................................................................... 46 CHANGES TO PROGRAM SCHEDULES ........................................................... 46 CHANGES IN THE FAA’S TRAFFIC FORECAST ................................................ 47 IMPROVEMENTS IN THE FAA’S SIMULATION MODEL ...................................... 48 CHANGES TO BENEFIT ESTIMATES OVER TIME ............................................. 49 ACRONYMS AND ABBREVIATIONS ............................................................. 52 4 INTRODUCTION This report presents the Federal Aviation Administration’s (FAA) Business Case for the Next Generation Air Transportation System (NextGen). NextGen is a wide-ranging series of improvements that will transform the air transportation system, encompassing new air traffic management technologies and procedures; airport infrastructure improvements; and environmental, safety and security-related enhancements. This Business Case considers only the air traffic management aspects of NextGen, as the costs of these improvements are most directly borne by the FAA and system users. Specifically, this Business Case focuses on the improvements described in the Future of the National Airspace System (NAS) report1 and in the 2015 NextGen Implementation Plan2. Work for NextGen improvements began in 2007. By 2009, work had spread across multiple programs, which constitute NextGen’s foundations. Consequently, as of 2015, work on NextGen improvements is widespread, far-reaching and at a variety of maturity levels. Some early improvements have been deployed and are currently yielding benefits. Of the future improvements, some have received investment decisions, which provide dedicated funding, detailed work plans and deployment schedules. Other future improvements are still under internal FAA concept development, review and investment analysis. For the first time, the Business Case for NextGen breaks out its cost and benefit estimates by improvement maturity level, including sunk costs and benefits already reaped. This was done in order to associate the costs and benefits of improvements with their deployment status and schedule certainty. In addition to these changes, this year’s report revises 2014 estimates of the costs and benefits of NextGen. Revisions include updated traffic and fleet forecasts, updated economic factors, improvements to the fast-time model used to estimate most of the operational benefits, changes to planned deployment dates for various improvements and changes to specific business plans that were incorporated into this analysis. Lastly, a new model was used to estimate the equipage level and associated costs borne by aircraft operators to use NextGen improvements. Unless otherwise noted, all financial values are given in 2015 dollars. Also, component values may not exactly sum to their reported totals due to rounding. 1 Federal Aviation Administration, Future of the National Airspace System (NAS), Version (2016), faa.gov/nextgen/media/FutureOfTheNAS.pdf. 2 Federal Aviation Administration, NextGen Implementation Plan (2015), available at faa.gov/NextGen/library 5 SCOPE OF ANALYSIS WHAT IS INCLUDED IN THIS BUSINESS CASE This Business Case deals only with improvements resulting directly from NextGen. These improvements, typically either large capital projects or new aircraft procedures, impact the NAS. Capital improvements include programs that use new technologies to improve efficiency. As an example, Data Communications (Data Comm) augments voice communications between a controller and aircraft with a secured text messaging system. Multiple communications per flight
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